House of Representatives Committees

Chapter 5 Expenditure

Background

5.1An increase in expenditure has been a feature of election campaigning
since the introduction of the funding and disclosure scheme in 1984.[1]
While parties once campaigned only in the period immediately prior to an
election, they now engage in continuous campaigning between elections, with a
significant increase in campaign activity in the year before an election.[2]
Increased campaigning activity has been accompanied by an increase in overall
amounts of expenditure by political parties and candidates.

5.2Curtailing these rising costs—slowing what has been termed the
campaigning ‘arms race’—has been one of the motivating factors for those
seeking reform of political financing arrangements. This chapter examined
options for addressing concerns about costs by directly regulating expenditure
under the current system, or moving to a system that involves imposing caps or
restrictions on areas of high expenditure such as electronic advertising.

5.3While political parties’ expenditure details are not readily disclosed
or accessible under the current scheme, estimates may be made based on the
information that is required to be provided. The Electoral Reform Green
Paper – Donations, Funding and Expenditure (first Green Paper) cited
figures based on the difference in the reported total yearly expenditures for
the ALP and the Liberal Party for the years 2003-04 (a non-election year) and
2004-05 (an election year), indicating estimates of electoral expenditure at
approximately $19.4 million and approximately $22 million respectively.

5.4A number of submitters expressed concern about the increasing costs of
political campaigning. In his submission to the first Green Paper, Mr Stephen
Mills articulated the concerns of many proponents for reform of political
financing arrangements, stating that:

Very high levels of campaign expenditure are unfair: they
limit participation in important campaign arenas such as television advertising
to the large parties, and exclude smaller parties with fewer financial
resources. They are perverse: they favour groups and individuals with existing
wealth and/or fundraising skills over those skilled in, for example, policy or
government affairs. And they are dangerous: high levels of campaign spending
require high levels of fundraising, and party reliance on private donors
creates the potential for real or perceived influence on decision making,
degrading public confidence in the integrity of the political process.[3]

5.5The first Green Paper also highlighted the mechanisms by which political
parties aim to maximise the audiences for their messages during the
parliamentary cycle. A range of media is now employed, including print, radio,
internet, social networking and the most expensive, television. This has had a
drastic impact on the costs of elections. The first Green Paper articulated
the link between ‘new media’ forms of campaigning and the spiralling levels of
election spending, stating that:

The modern phenomenon of permanent campaigning is expensive
and increasingly so. Media advertising remains a major cost, and the major
political parties’ expenditure on campaigning, principally through advertising,
is increasing at rates far in excess of inflation.[4]

5.6The expansion of the means by which campaigning can take place has been
one key factor contributing to spiralling election costs.

Current arrangements

5.7Part XX of the Commonwealth Electoral Act 1918 (Electoral Act)
requires political parties and associated entities to disclose specific details
of receipts and debts that exceed the applicable disclosure threshold, which was
$11 500 for the 2010-2011 financial year. The current disclosure requirements
contained in Part XX of the Electoral Act do not compel parties to disclose
specific details of their expenditure, electoral or otherwise, above the
disclosure threshold.

5.8Candidates and joint and unendorsed Senate groups in each election and
by-election are required to lodge returns that include details of ‘electoral
expenditure’ as well as donations. ‘Electoral expenditure’ is defined in the
Electoral Act as expenditure incurred, whether or not incurred during the
election period, on:

nthe display, during
the electionperiod, at a theatre
or other place of entertainment, of an advertisement relating to the election; or

nthe production of an
advertisement relating to the election, being an
advertisement that is broadcast, published
or displayed as mentioned in paragraph (a), (b) or (c); or

nthe production of any
material (not being material referred to in paragraph (a), (b) or (c))
that is required under section 328, 328A or 328B to include the name and address of the author
of the material or of the person authorizing the material and that is used
during the election period; or

5.9The Commonwealth Electoral Amendment (Political Donations and Other
Measures) Bill 2010 seeks to expand the definition of ‘electoral expenditure’
to include additional costs such as payment of staff employed for an election
campaign and travel during an election campaign.[6]

5.10A survey of the candidate returns for each election on the Australian
Electoral Commission (AEC) website indicates that candidates endorsed by
political parties, with a few exceptions,[7] generally lodge ‘nil’
returns. This is because, apart from where they use their own money or receive
donations directly, all expenditure is incurred through the endorsing political
party. There is thus no way in which information regarding this expenditure is
made public.

5.11The requirement for political parties to provide details of expenditure
was in the Electoral Act from 1984 to 1996, with the exception of the 1993
election. The relevant provision was repealed prior to the 1993 federal
election once more comprehensive annual disclosure laws were introduced. The
requirement was reintroduced for the 1996 election and removed again.

5.12The Joint Standing Committee on Electoral Matters (JSCEM) report on the
conduct of the 1996 federal election recommended that section 314AD of the
Electoral Act, which required the disclosure of details pertaining to amounts
paid (over the $1 500 threshold at the time, excluding amounts below $500) annually,
be repealed. This was based on recommendations to this effect made by the
Australian Labor Party, the Liberal Party and supported by the AEC.[8]
The recommendation to remove the requirement stemmed from a view that the
administrative burden on parties in disclosing this information outweighed the
resultant benefits of the disclosure of these details.

5.13However, the lack of disclosure of expenditure by political parties was
raised in submissions as an issue that erodes the quality of disclosure that is
obtained through the current scheme. The Commonwealth disclosure scheme has
changed significantly since the requirement for political parties to disclose
expenditure details was removed in 1996. For example, there is now a much
higher disclosure threshold in place.

5.14The AEC noted in its submission that ‘[a]mendments to the original
annual disclosure scheme have seen less detail required to be disclosed in the
relevant returns than originally was the case’.[9]

5.15One argument that arises in this area is that the current obligations
are more onerous on Independent candidates than endorsed candidates, because
Independent candidates reveal details of their expenditure that are never revealed
by endorsed candidates. The AEC stated:

Since 1996, the AEC has not obtained—and there was no
requirement in the legislation for us to obtain—amounts of electoral expenditure
that had been incurred by the political parties and endorsed candidates. So the
Act, as it stands at the moment, has a different requirement that applies to
independent candidates from that that applies to endorsed candidates. We were
merely raising that for the committee's consideration, and just raising: is
that the policy that the committee would still wish to adopt? But that is
clearly the position that is currently in the Act.[10]

5.16In its third supplementary submission, the AEC also referred to comments
made by the Member for Lyne during the second reading debate for the
Commonwealth Electoral Amendment (Political Donations and Other Measures) Bill
2009:

The fact that the declaration of your expenditure happens
separately for non-aligned candidates versus candidates who are members of
major political parties is an issue that I would hope this government strongly
considers. Surely it should be the same rule for all, and that includes the
major political parties as well as Independent and unaligned candidates. The
fact that the major parties can bury their figures in some sort of global
expenditure at the end of the year, separate from by-election figures, which
have to be declared by people such as me within a certain time frame, is an
anomaly. I hope it can be corrected through what I hope is the start of a
reform process.[11]

5.17The NSW Greens Political Donations Research Project expressed some
concerns about what they described as a ‘loophole’ regarding disclosure by
endorsed candidates following an election. The group stated that:

...all money can be funnelled through the head office for all
MPs and other candidates running for the lower house in federal parliament.[12]

5.18The importance of the disclosure of expenditure has also been noted in
the context of a more complex regulatory framework. Dr Norman Thompson has
commented in reference to the NSW system that:

Without a legal requirement for parties to disclose all
expenditure in individual electorates, it could be difficult and perhaps
impossible to ascertain if a party has breached its electorate expenditure cap.
In order for it to be adequately monitored, there must be reporting of party
expenditure by each electorate.[13]

5.19Under the current disclosure scheme there are no measures in place to
curtail or limit spending on elections. Concordantly with other aspects of
reform of the political financing regime, the options for change can be
separated into two categories:

nthe implementation of
changes to the current system; or

nadopt a broader
approach involving restrictions on amounts or types of expenditure.

Improving the current system

Disclosure of expenditure

5.20The key proposal for improvement to the current system relates to
enhancing the disclosure measures of political parties, associated entities (where
relevant) and third parties with respect to their expenditure.

5.21As mentioned in previous chapters, the various components of political
financing arrangements are intertwined. In the context of political
expenditure, the arrangements in place for regulating public funding help set
the parameters within which the feasibility of expenditure reform options can
be explored.

5.22A key determining factor in relation to the desirability of inserting
requirements into the Electoral Act whereby political parties and associated
entities, where relevant, disclose details of their expenditure will be whether
a reimbursement scheme for claiming public funding is in place.

5.23Under reimbursement schemes, parties or candidates typically lodge
claims that detail their expenditure to the administrating body—at the federal
level it would be the Australian Electoral Commission (AEC). The information
contained in these reports is made publically available under section 320(1) of
the Electoral Act. Accordingly, expenditure details are in effect being
disclosed, and a distinct detailed disclosure obligation regarding expenditure may
not be necessary.

5.24However, in the absence of a reimbursement scheme, an alternative means
of obtaining disclosure of details of expenditure by political parties and
associated entities may be warranted.

5.25The benefits to transparency and accountability in the current scheme by
requiring political parties (and associated entities) to disclose details of
their expenditure have been raised. However, some consideration must be given
to the way in which further breakdown of the information could occur to obtain
the types of information that some people may be interested in, such as the
amounts that political parties spent on campaigns in particular electorates.

5.26In a discussion paper prepared for the Democratic Audit of Australia,
Kenneth R. Mayer identified the following run-off effect of the absence of this
requirement from the Australian campaign finance regime. He argued that:

Because parties disclose so little information, we have
little understanding of how parties allocate their money, which seats they
consider most important, and what the relationship is between what they spend
and how their candidates do. Because so little information is revealed, the
media give the annual and election disclosures only a perfunctory treatment.[14]

5.27The AEC questioned the value that would arise from having political
parties disclosing this information:

...when you have expenditure that covers a whole state or,
indeed, a whole country, I suspect how you apportion that according to
electorates would be quite difficult...

The question would be if you took overall expenditure by a
party on a particular item would you divide it by 150 and, if you did, is that
a particularly meaningful figure to record for expenditure in a particular
seat?[15]

5.28The AEC also highlighted an additional difficulty that arises in this
area, noting that:

...you have the additional issue about what to do with the
Senate, when that is not done on a divisional basis. It is done on a whole
state basis, so are we going to aggregate that information or disaggregate it?
How is that to be recorded?[16]

5.29A primary consideration in the examination of the detailed disclosure of
expenditure by political parties then is the type of information that would be
useful to obtain. While political party expenditure on electorate basis may be
of interest, it is unlikely to be an issue that will influence an elector’s
vote as much as knowledge of donations received by the political party.
Accordingly, the issue is one for consideration, but is not crucial to
transparency and accountability of the movement of funds within the political
system.

5.30There are three ways in which the disclosure of expenditure of political
parties and endorsed candidates could be changed to require detailed disclosure
of expenditure within a disclosure-based system:

ninsert a requirement
that details of all expenditure in excess of the disclosure threshold by
political parties and associated entities must be disclosed in annual returns;

npolitical parties could
be required to lodge election returns disclosing their ‘electoral expenditure’;
or

npolitical parties and
associated entities could be required to lodge details of their ‘electoral
expenditure’ in their annual returns;

->The definition
of ‘electoral expenditure’ in section 308 of the Electoral Act, provides that
‘electoral expenditure’ need not be ‘incurred’ during the election period, but
also states that it must relate to activities undertaken during the election
period or ‘relating to’ an election. A revised definition may be necessary if
political parties are to disclose details of ‘electoral expenditure’ in annual
returns, omitting the limitation on the time period.

Detailed disclosure of expenditure by parties and entities

5.31The insertion of a requirement into the Electoral Act requiring
political parties and associated entities to disclose details of all expenditure
above the threshold would be particularly beneficial in a system where there is
no reimbursement scheme in place and with a high disclosure threshold. In this
scenario, the absence of claims as a source of expenditure details and the high
disclosure threshold—reducing the items of expenditure that need to be
disclosed—means that less information about the general expenditure of
political parties and endorsed candidates is available. A requirement for
the detailed disclosure of expenditure would enhance transparency by providing
a source of information on relevant spending.

5.32Associated entities must also be subject to this requirement, so as not
to provide a loophole allowing circumvention of the requirement by political
parties.

5.33At the time this requirement was deemed ‘too onerous’ in 1996, the
disclosure threshold was at a much lower level than $11 500 for the 2010-2011
financial year and parties did not receive any additional funding or support to
ease the burden. The argument is thus less persuasive in reference to a post-2006
disclosure scheme.

5.34As above, if full disclosure of expenditure was implemented where a high
disclosure threshold was in place, the disclosure of expenditure by political
parties and associated entities could form part of the annual return. However,
the current situation whereby disclosure takes place ‘after the fact’ would
also need to be considered. It may be that the value of disclosure of expenditure
would be heightened where a contemporaneous disclosure system is in place.

Frequency of disclosure

5.35Alternatively, introducing the option to require political parties to lodge
specific ‘election returns’ disclosing expenditure pertaining to a specific
election and/or to include electoral expenditure details in their annual
returns submitted in relation to election years, are best suited to a system
with no reimbursement scheme and a low threshold. In a system with a low
disclosure threshold, a detailed disclosure requirement regarding all
expenditure may be seen as too administratively onerous without any additional
support for political parties, as was the case in the past, as too many details
would need to be recorded and reported.

5.36Consideration would need to be given as to whether this requirement should
be implemented in addition to, or instead of, the annual disclosure requirement
for the financial year in which the election was held.

5.37Regardless of the nature of the obligation, in this scenario, a
requirement for the reporting of electoral expenditure in an election return or
as part of an annual return for the relevant financial year strikes a better
balance between making this pertinent expenditure information available without
unduly burdening those with reporting obligations, as the requirement would
only arise in years during which a federal election had been held

5.38As with alternative models, other elements such as the timing of
disclosure—whether it is ‘after the fact’ or contemporaneous reporting—will
also influence the selection of a preferred approach.

5.39The NSW Greens Political Donation Research Project recommended that
political parties make detailed disclosure of all ‘electoral expenditure’—as
defined in section 308—to the AEC, as opposed to all expenditure.[17]
It also recommended that the definition of ‘electoral expenditure’ be
continually updated to include new and emerging forms of electronic
campaigning. The justification for the implementation of provisions requiring
disclosure of expenditure above the threshold is that given that such a large
amount of taxpayer funds are spent on electoral expenditure, the public has a
right to know about how it is being spent.[18]

5.40The administrative burden imposed through the disclosure of only ‘electoral
expenditure’ is significantly less than that connected to disclosing all
payments made in a financial year that exceed the threshold.

5.41If a lower disclosure threshold is in place, it may be more feasible in
order to reduce the administrative burden on political parties and associated
entities, to provide for the disclosure of ‘electoral expenditure’ only in each
annual return, regardless of whether or not an election was held. This would be
a useful move in the context of continuous campaigning. The definition of
electoral expenditure would need to be amended, or an alternative definition
inserted, so as not to limit the time period during which expenditure of the
types defined in section 308 can be incurred and has to be disclosed.

Relevant considerations

5.42In the United States, political parties must provide certain details
regarding their expenditure exceeding the threshold of $200 as a part of their
disclosure obligations. In Canada, political parties must also provide a
Statement of General Election Expenses for each election in which the total
amount paid in specified categories, any discount received and any remaining
unpaid portion of the transaction must be provided.[19]

5.43Consideration could be given to applying a similar approach in Australia
to that applied in Canada. Such a model would involve political parties
disclosing detailed information in the legislative categories of ‘electoral
expenditure’, with details of discounts and unpaid portions in their annual
returns. It may be that this information will be of greater use to the public
in identifying the potential for influence, than a general disclosure of all
expenditure.

5.44In Australia, if there are privacy concerns in the context of
expenditure disclosure, similar arrangements to those proposed in Chapter 3
regarding only publishing the name, suburb and post code of individuals where
relevant could apply in relation to disclosure of expenditure.

5.45In addition, political parties must be sufficiently funded and resourced
to meet any additional administrative burden imposed through the imposition of
additional disclosure obligations.

Conclusion

5.46 Comparable jurisdictions require that details of expenditure be
disclosed. The disclosure of certain details of electoral expenditure above the
applicable disclosure threshold enhances the transparency and accountability of
the political financing scheme and the integrity of the broader democratic
process. The committee believes this will be the case regardless of the level
of the disclosure threshold that is in place.

5.47Arguments relating to the administrative burden on political parties and
associated entities in disclosing details of expenditure above a high threshold
of $11 500 are not persuasive.

5.48In the case of lower thresholds, it is worth noting that in the past it
was argued that the detailed disclosure requirement for expenditure was too
administratively onerous for those with reporting obligations, which led to the
removal of the requirement for detailed disclosure of expenditure in 1996 when
the threshold was $1 500. However, given that making these details
publically available is crucial to enhancing transparency and accountability in
this area, it is worthwhile exploring ways to assist those responsible to meet
this requirement.

5.49Providing additional resources such as increased guidance from the AEC
on what is required, and funding from the Commonwealth targeted at supporting
the increased administrative burden will help to support the transition to, and
ongoing provision of expenditure details. One way in which assistance could be
provided is through targeted funding to support the additional administrative
workload. Options for administrative funding are discussed in Chapter 6.

5.50 Reform along these lines to the disclosure scheme may necessitate
changes to the AEC’s current online lodgement scheme to increase the efficiency
with which processing of returns can take place. Accordingly, the AEC must
educate political parties, candidates, associated entities and any other group
that may be affected by the changes.

Recommendation 13

5.51

The committee recommends that the Commonwealth Electoral
Act 1918 be amended, as necessary, to require political parties and associated
entities to disclose details of their expenditure above the applicable
disclosure threshold in their six-monthly returns.

Recommendation 14

5.52

The committee recommends that to complement the requirement
for political parties and associated entities to disclose details of expenditure
above the disclosure threshold, the Australian Electoral Commission should
provide guidance and enhance its online lodgement system to help ensure that
those with reporting obligations have a clear understanding of, and the
administrative means by which, to meet this obligation.

5.53If a high disclosure threshold remains in place, the requirement for
political parties to disclose their expenditure details in annual returns
should be reinstated. While detailed disclosure of expenditure is the ultimate
goal, at a minimum, political parties should be required to disclose certain
details regarding electoral expenditure as defined in section 308 of the Commonwealth
Electoral Act 1918 in their annual returns. The committee sees this as a
logical step in an era of continuous campaigning.

Campaign committees lodging returns

5.54One of the issues raised in political financing discourse is the absence
of political party disclosure on expenditure and the effect of this on
transparency and accountability.

5.55The AEC noted the difficulties that would arise with attempting to
design a scheme that would achieve the desired ends of increasing the
transparency of political party expenditure on an electorate basis, but also
indicated that there would be value in the information being required to be
disclosed.[20]

5.56The AEC comments were made in the context of political parties recording
and disclosing the information, as opposed to each distinct campaign committee
having a disclosure obligation for an election. In that context the AEC stated
that they did not believe that the resolution to such an issue was ‘too hard’
so as not to be worth considering.[21]

5.57A further option to improve the quality of disclosure regarding donations
and expenditure of endorsed candidates is to require campaign committees for
candidates and Senate groups to lodge separate disclosure returns.

5.58A ‘campaign committee’ is defined in section 287A of the Electoral Act
as ‘a body of persons appointed or engaged to form a committee to assist the
campaign of a candidate or group in an election’.

5.59While the implementation of separate disclosure obligations in relation
to endorsed candidates would potentially improve the amount and quality of
information available in relation to individual candidates’ expenditure, the
benefits of this must be weighed against the administrative burden on those
that work on and run campaign committees. The additional burden on the AEC
during elections would also need to be considered. In particular, the AEC must
have adequate resources to administer such a system.

5.60An additional consideration is the precise person that would be
responsible for meeting the obligation. In a political party the party agent
is responsible for the disclosure obligation, and within an associated entity it
is the financial controller. An equivalent position, if one exists, would have
to be designated the responsibility within a campaign committee for an endorsed
candidate.

Conclusion

5.61Volunteers play important roles in the political process and care should
be taken to ensure that changes to funding and disclosure arrangements do not discourage
participation through imposing onerous obligations on those that wish to
contribute in this manner.

5.62The committee has recommended that detailed disclosure of expenditure be
introduced. While the agent for the relevant party will be responsible for
lodging this information, the campaign committees will also have a role to play
in being aware of these obligations and maintaining accurate records of
relevant expenditure that will need to be provided to the political parties.

5.63As discussed earlier, political parties and the AEC will need to be
adequately resourced to ensure this system works effectively and to minimise
the potential for inadvertent or purposeful breaches. Parties and the AEC can
then assist campaign committees to better understand their role in the process.
Options for administration funding to political parties to help address and
meet increased reporting obligations are discussed in Chapter 6.

Further reform options

Caps on general expenditure

5.64There are currently no limitations on the amounts that political parties
can spend either generally or specifically in relation to election campaigns. Third
parties are also not subject to limitations on their expenditure. Proposals for
reform in this area generally involve the implementation of measures limiting
levels of election spending. The most commonly raised measure to address high
levels of expenditure is the imposition of caps on expenditure by political
parties and third parties. The precise definition of ‘third party’ is central
to the success of such schemes, but caps on expenditure generally extend to
those that incur expenditure in defined categories or in advocating a vote.

5.65This section deals with caps on expenditure by political parties only.
An incidental matter to capping political party expenditure is the capping of
third party expenditure so as to prevent circumvention of the laws. Caps on
third party expenditure are addressed in detail in Chapter 7.

5.66Suggestions for the implementation of caps on expenditure by political
parties and third parties have permeated discussions regarding the need to curb
election spending. Proponents for this reform often argue that direct
entitlement public funding amounts had been included in party financial
modelling as an additional stream of funding.[22] The apparent failure of
public funding to curb levels of election spending tends to be presented as at
least one justification for caps on expenditure.

5.67The first Green Paper outlined the general arguments for and against
capping expenditure. The arguments for capping expenditure included:

ncaps mean there is no
real advantage in one candidate or party having access to greater financial
resources as there is a limit on how much they can spend;

ncaps create a level
of financial equality between candidates at an election;

ncaps reduce the level
of election finance needed, meaning that more candidates (including less
wealthy candidates) may compete at elections;

ncaps help to contain
overall election costs which, in turn, reduces reliance on donations and the
associated problem of private donors using donations to influence candidates or
parties’ policies;

nthe absence of caps
encourages excessive television and other advertising; and

5.68The arguments against the implementation of expenditure caps were also outlined
in the first Green Paper:

nexpenditure caps are
too difficult to enforce;

ncandidates should be
free to campaign in whatever manner they see fit (so long as they comply with
bribery and corruption laws);

nmodern electioneering
practices mean that individual candidate spending is not as relevant as the
spending incurred by centralised party organisations;

ncaps on party
expenditure need to extend to third parties, which may cause problems; and

nit is difficult to
set realistic spending caps due to the changing costs of media access and
electioneering techniques as well as inflation and the need to keep closing
administrative loopholes once these are discovered.[24]

5.69In its submission to this inquiry, the Australian Labor Party indicated its
support for the implementation of caps on expenditure as a measure to limit the
increasing levels of election spending, commenting that:

In recent years...the size of
political campaigns have grown at an alarming rate, with some in the community
concerned that election spending has risen to unsustainable levels...

The ALP believes that it is now
time for Australia to introduce effective expenditure caps on campaign spending
which will limit the amount that parties at national level, and candidates at
local level, can spend on electioneering.[25]

5.70The Australian Labor Party listed a number of underlying principles for
the design of an effective expenditure cap, including that:

nSpending caps should
apply for a set period, calculated from the last possible date for a federal
election. This will give certainty to any expenditure cap given that there are
not fixed terms for the Commonwealth.

nAny cap should be set
at a level that provides equality between the two major grouping [sic] in
Australian politics, the Australian Labor Party and the Liberal-National
Coalition.

nA national
expenditure cap should be set at a level that ensures no Third Party can
distort the legitimate political campaign of candidates or political parties.

nSeparate expenditure
caps for local electorate level spending as well as national spending should be
set.[26]

5.71The Australian Greens also supported expenditure caps and suggested that
lower house candidates be able to self-fund their campaign up to half the amount
of the expenditure cap. They argued that candidates that form a Senate group
should be able to donate collectively to the Senate campaign up to 20 per cent
of the amount of the expenditure cap.

5.72The first Green Paper pointed out that in the United States, political
parties and candidates can undertake to cap their expenditure in exchange for
the receipt of public funding.

5.73The interaction between public funding and a potential expenditure cap
scheme was also raised by the Accountability Round Table which indicated its
support for a system of expenditure caps and argued that the level of the cap
should correspond to the level of public funding to which a political party was
entitled.[27]

5.74The Australian Greens believe expenditure caps should apply for a six
month period to political parties, candidates, third parties and associated
entities, and that they should not apply to volunteer labour. The Australian
Greens argued that compliance with expenditure caps should be a condition of
public funding with penalties, such as loss of public funding, large fines and
in extreme cases, disqualification as a candidate or Member of Parliament, if
the cap is exceeded.

5.75While support for the concept of expenditure caps was evident in the
submissions, there are a number of details in relation to a precise operational
model for capping expenditure that need to be discerned. The first Green Paper
stated that one of the difficulties in establishing effective caps on
expenditure is that a clear and broadly accepted definition of ‘election’ and
‘campaign’ spending would need to be developed.

5.76The first Green Paper raises the United Kingdom, Canada and New Zealand
as possible starting points for this task.[28] The NSW and Queensland
approaches could also be considered for guidance. An examination of the
selected jurisdictions indicates that three primary areas need to be defined:

nthe activities that
are subject to the cap;

nthe period during
which the activities will be regulated; and

nthe level of the
applicable cap.

5.77The Australian Greens propose a solution covering each of these
categories. They suggest that a cap on expenditure should apply to defined
electoral campaigning expenses, including electronic campaigning. In relation
to the precise operation of a cap on expenditure, the Australian Greens
recommended that a cap on election expenditure should apply on a state basis
for political parties; to individual House of Representatives candidates; and
to parties in respect of each House of Representatives electorate. They proposed
that the party state wide cap should be based on the number of voters on the
roll to prevent comparatively large sums being spent in small states.

5.78The importance of effectively resolving definitional issues is evident
when the United Kingdom situation is examined. There it was found by the UK
Ministry of Justice that measures taken to reduce election spending had not
been entirely successful. One of the reasons for this was that the definition
of ‘campaign’ expenditure in their legislation was not wide enough.[29]

5.79Additionally, the potential for circumvention of any cap and how this
could be addressed was one of the key arguments that submitters made against
the implementation of caps on expenditure. The AEC raised concerns regarding
the potential for political parties to endorse multiple candidates (under the
model proposed by the Australian Greens, this could occur in the lower house)
across electorates with the aim of maximising the allowable amount under the
cap.

5.80The AEC observed that provisions in the Electoral Act for unlimited
registration of ‘related parties’ add to this potential loophole.[30]

5.81The simplicity of a cap scheme was also stated to be a key issue in its
effectiveness. The AEC highlighted the general rule that:

...the more complex the design is for a scheme, and
particularly the more exceptions to general rules that are catered for, the
greater the potential for circumvention.[31]

5.82For example, where certain categories of expenditure are excluded from
caps, the AEC indicated that there was potential for other types to be
‘repackaged under an exempt category’.[32] The exemption of
membership fees from disclosure laws upon their introduction in 1984 was cited
as an example of some ‘quarters’ acting to create ‘tiered’ levels of membership
as a mechanism to obtain private funds without being caught by disclosure laws.[33]

5.83In addition, mechanisms by which a cap scheme can be enforced lie at the
heart of conceptual opposition to the idea. Enforcement and compliance issues
in the context of political financing are addressed in detail in Chapter 8. However,
on the issue of enforcing compliance with caps specifically under the current ex
post facto approach to compliance, the AEC stated that:

...post-event strategy of enforcement through a penalty
regime is perhaps best targeted at compliance behaviour that requires something
to be done (i.e. make disclosures) rather than behaviour that requires
something not be done (i.e. not exceed donation or expenditure caps).[34]

5.84A further general argument raised in the first Green Paper related to the
potential for the restraint imposed by caps on well-resourced political parties
to be considered an unwarranted and excessive interference with free speech. [35]
The constitutional dimension of this argument is considered in detail later in
this chapter. The first Green Paper also considered the effect that expenditure
caps might have on new parties. It referenced the Canadian experience,
stating:

After the introduction of spending caps in Canada, electoral
volatility remains high, indicating that spending caps do not act as a barrier
to new entrants in the political process. Instead, it is argued that incumbents
are prevented from exploiting their fundraising advantages. While undoubtedly
an imperfect instrument, spending caps in Canada are seen as having achieved
significant successes in controlling costs and levelling the campaign playing
field.[36]

5.85The variance in international experiences provides some indication of
matters for consideration in the Australian context.

Broadcast advertising expenditure

5.86The first Green Paper canvassed the notion that the most expensive
element of campaign expenditure was the component that was spent on
advertising.[37] In his submission to
the first Green Paper, Stephen Mills argued that within the broad category of
advertising, television advertising was the ‘largest single component of
spending’.[38]

5.88Mr Mills’ proposal essentially recommended that campaign spending limits
be a condition of receipt of public funding. He stated that:

...parties in receipt of public funding should be required to
limit their campaign expenditure to a predetermined proportion of their
expected public-funding receipts; that is, campaign spending limits should be
made a condition of public funding.[40]

5.89Mr Mills elaborated on his proposal in his appearance before the
committee and distinguished the approach from the concept of a general cap on
expenditure, commenting that:

The approach, I believe, is potentially a better and more
effective way of capping spending than by imposing blanket or global caps a la
the recent New South Wales election. That is because such caps are essentially
set in light of demand-side factors—for example, the reported costs of
campaigning—and they are complex to design and enforce, with plenty of scope
for loopholes and ambiguity. With public funding, on the other hand, dollars
follow votes, which is a powerful principle, and the spending caps process
could be designed to give parties themselves an incentive to comply, mainly by
discouraging overspending through punitive reductions in their public funding receipts.[41]

5.90Mr Mills suggested, while acknowledging that the precise details of such
an arrangement required consideration that the AEC administer the system
through using vouchers and reimbursing broadcasters for campaign advertising
they undertake on behalf of political parties during the campaign.[42]

5.91One issue that was raised during Mr Mills’ appearance was that imposing
the task of allocating broadcast time to the AEC ran the risk of politicising
its role. In response to questioning by the committee on this potential effect,
Mr Mills responded that:

It is not any part of this proposal to politicise [the AEC],
but it is certainly part of it to give it a much more difficult and central
role. This is a tough job.[43]

5.92GetUp also proposed a detailed model for the capping of expenditure that
involved a significant focus on broadcast advertising. The group proposed two
alternative models:

nA ‘broadcast
communication expenditure cap’, which would operate by capping the amount that
each individual campaign organisation (political party or third party) is
permitted to spend on this activity within the controlled period; or

nAn expenditure cap
that operates at an aggregate level by capping the total amount that can be
spent by publicly funded political parties on electronic broadcasting (whilst
leaving those political parties who are not receiving public funding and third
party campaigners subject to a proportionate cap).[44]
This second option is similar to the proposal by Mr Mills.

5.93In the first Green Paper the merits of capping certain types of
expenditure were considered. It was canvassed as a possible solution to the
absence of other features in the current political financing scheme, such as
fixed election dates, that may render a cap scheme difficult to administer.[45]

5.94The concept of imposing a cap on components of expenditure is arguably a
logical solution to some of the shortfalls identified with the general blanket
cap on expenditure. For example, there is seemingly less scope for
circumvention of caps through, for example, third parties, where public funding
is tied to expenditure limits on broadcast advertising.

5.95Similarly to the blanket cap, in order to operate effectively, the
scheme must be complemented by effective and workable mechanisms for
enforcement. These are discussed in detail in Chapter 8, but it should be
flagged as an issue from the outset.

5.96In relation to the similar system that is currently in operation in New
Zealand whereby broadcast time is allocated to political parties by reference
to opinion polls and various other external mechanisms, Mr Mills stated that
New Zealand did initially encounter some issues with their legislation, but
that these were soon rectified.[46] For example, in relation
to the 2005 election in New Zealand, the National Party did not account for GST
when booking its election broadcast time, which led to the party spending
approximately $112 000 more in campaign advertising than was allowed under the
law. Further, Andrew Geddis explained in a paper prepared for the Democratic
Audit of Australia:

...because parties may only spend as much on election
broadcasting as they are allocated by the Electoral Commission before the
election, there is a large discrepancy between the ability of smaller and
larger parties to access this medium. In 2005, for instance, Labour was
entitled to spend $1.1 million on broadcasting its campaign advertisements,
while the ACT, Green, New Zealand First and United Future Parties could spend
only $200 000 each. It is simply not legitimate for one party to be allowed
five times more direct exposure than its competitors.[47]

5.97It is difficult to undertake a detailed critique of such proposals
without fundamental details such as the way in which the scheme would be
administered and the method by which the amount of airtime is calculated. It is
evident that these issues themselves may cause significant difficulties. However,
the first Green Paper identified the following potential results of a cap on
broadcast expenditure:

nthere may be an
increase in expenditure on non-television advertising, or a shift in
expenditure from television advertising to other media, including an increased
emphasis on internet campaigning which may not be accessible by all parts of
the electorate;

nan increased cost to
government and hence the taxpayer (if Government funding or support was
provided for television commercials);

npolitical parties and
individual candidates could consider it unfair if their freedom to advertise
was restrained, but funds were not provided to them for advertising; and

npotential
constitutional difficulties in relation to the maintenance of the
constitutionally prescribed system of representative and responsible
government, although again it is possible these could be avoided depending on
the exact nature of the scheme.[48]

5.98Further, the precise measures would need to be examined in detail to
determine whether there is potential for their circumvention. The Nationals expressed
their general view regarding expenditure cap schemes in this respect,
submitting that:

...any system of restrictions on
political expenditure in election campaigns must be approached cautiously and
take into account the real cost of communicating with voters, the range of
factors contributing to the cost of campaigning and the varying structures of
Australia’s political parties.[49]

Constitutional issues

5.99Similar constitutional issues exist in relation to the capping of
expenditure as those discussed in Chapter 4 regarding the capping of
donations. One argument may be that expenditure caps may not directly burden
the freedom of political communication because the political parties’ spending
money is distinct from individuals contributing money as a form of support.[50]

5.100An alternative argument is that an expenditure cap does restrict
political communication because most expenditure is in relation to
communicating political matters.[51] It would appear then
that the level of the cap and whether it would allow for an appropriate level
of communication would be primary in any assessment of its constitutional
validity. This may cause difficulties with an expenditure cap meeting its aim
of curbing levels of election spending.

5.101The AEC also outlined the role constitutional issues could play regarding
the level at which the cap should be set. It argued that:

An expenditure cap will only be effective in reducing the ‘arms
race’ if set significantly below historic campaign spending levels. However,
reduction of costs in this manner and the oft-associated limitation on
political communications carries with it certain risks of a constitutional
challenge as was shown by the experience in Canada in 2004.[52]

5.102The key constitutional requirement for a law that imposes a burden on
the implied freedom of communication is that it must be reasonable and appropriate
and adapted to meet a legitimate need.[53] Professor Anne Twomey
stated in relation to the capping of donations that it appears that the need to
reduce corruption is accepted by Australian courts as being a legitimate one.[54]
A similar argument could be applied to the capping of expenditure.

5.103The first Green Paper pointed out that the United States, Canada and the
United Kingdom all enacted legislation to cap campaign expenditure. The
legislation in each of these countries has been the subject of judicial analysis
and consideration.[55] In relation to the validity
of the legislation in Canada and the United Kingdom, the first Green Paper
stated that:

The legislation in Canada and the United Kingdom was found
valid, on the basis that though the legislation was an infringement of the
right to freedom of political expression, the legislation was for the
legitimate purpose of establishing a level playing field for elections.[56]

5.104However, Professor Anne Twomey expressed some reservations regarding the
approach to the concept of ‘equality’ or ‘levelling the playing field’ that was
likely to be applied by Australian courts. While acknowledging that her view
in this respect differed from that of other constitutional lawyers, she stated
in her appearance before the committee that:

I do not think that at the moment the High Court would place
as much emphasis on the equality issues as some of the other constitutional
lawyers do...Again, part of this is looking at what the Americans said. The
point was made that in politics there is no equality. Political parties are
essentially different. Some parties will have better policies, better
candidates, better leadership and better management than others. Taking
everybody down to a common denominator and this whole idea of using a level
playing field I have some concerns about. Having said that, the other side of
it is what the High Court said in the Australian Capital Television case where
they were concerned about laws that favoured incumbents and limited the
communications of outsiders. I think it is very difficult to say how the High
Court would go on that sort of approach.[57]

5.105Professor Twomey also indicated that the level of any expenditure cap as
well as its approach to the separate issue of government advertising would also
have an effect on its constitutional validity. She advised that:

If you were going to impose expenditure caps on political
parties but whoever was in government had the advantage of the use of
government advertising, that may be a trigger for unconstitutionality. If you
start imposing expenditure caps you also have to think about the way that you
deal with government advertising, otherwise you potentially have a problem.[58]

5.106Naturally, details regarding the precise expenditure cap, such as its
level, would have an effect on its constitutional validity. There is no doubt
that taking some of these constitutional issues into account in the design of
the cap should result in a greater chance of it being found to be
constitutionally valid if a challenge was launched.

5.107The preceding constitutional issues are of relevance in considerations
regarding the more limited concept of imposing a cap on only broadcast
expenditure.

5.108In the Australian Capital Television v Commonwealth (1992) 177
CLR 106 (ACTV Case), the High Court considered the constitutional validity of
Part IIID of the Broadcasting Act 1942 (Broadcasting Act). Part
IIID imposed strict limitations on political advertising during an election
campaign and required broadcasters to allocate ‘free-time’ for political
advertising during non-election periods.

5.109In finding that the legislation was invalid and that it breached the
implied freedom of political communication found in the Australian
Constitution, Justice McHugh made the following additional points:

nThere were less
drastic means to address the need to prevent the potential corruption and undue
influence on the political process, rather than banning political advertising
during an election campaign and requiring free advertisements at other times;

nThe laws in Part IID
in practice favoured incumbent members and their political parties through the
way in which the scheme sought to allocate free-time for political advertising;
and

nThere was no evidence
that the measures sought to be implemented in Part IIID would have the desired
effect of reducing the potential for corruption and undue influence.[59]

5.110On this reasoning, in designing a scheme that involves caps on broadcast
advertising, as opposed to bans, as in Part IIID of the Broadcasting Act, it
may be more likely to be constitutionally valid if, in addition to taking into
account the implied freedom of political communication, the following are
considered:

nThe precise design of
the scheme and all its details render it ‘appropriate and adapted’ to meet its
aim;

nThe mechanisms that
are implemented as part of the scheme do not result in favouring incumbent
Parliamentarians or their political parties; and

nThe presentation of
convincing evidence that the measures sought to be implemented will meet their
aim.

5.111While a proponent of the notion of imposing caps on broadcast
advertising, Mr Mills conceded that there were a number of issues with the
concept requiring expansion, definition and consideration.[60]
It appears that a more effective final model that holds up under the Australian
Constitution can be designed if the lessons learned from judicial consideration
of previous iterations of similar concepts are taken into account.

Conclusion

5.112The successful operation of any expenditure cap lies in the details of
its design. In the implementation of a cap on expenditure, steps should be
taken to ensure its constitutional validity and to minimise the potential for
either inadvertent or purposeful circumvention.

5.113None of the selected jurisdictions appear to have comprehensively
designed a cap scheme that involves minimal potential for circumvention and
many have had difficulties regarding compliance with their schemes. Accordingly,
there does not appear to be sufficient evidence at the current time to
demonstrate that a cap scheme would be effective at the Commonwealth level in
curbing election spending and reducing the perception of undue influence.

5.114There is merit in proposals relating to caps on broadcast advertising
and tying public funding to certain undertakings to limit election campaign
spending. However, there are a number of administrative matters and issues
regarding the precise design of a workable model to be resolved before any such
proposal can progress further.